In Israel exists a highly developed system of capital markets, which relies on local activity through the Tel-Aviv Stock Exchange (“TASE”), a well-developed venture capital industry and vast international activity of institutional and technological investors in the form of significant capital transactions between Israel and overseas countries.
Despite low global growth and low interest rates, the Israeli venture capital industry is expected to generate very high returns in the next few years.
Israel’s innovative R&D is recognized as a leading global center, second only to Silicon Valley. Many Israeli companies, particularly in the technology and biomedical fields, have raised capital through overseas exchanges, particularly US exchanges: the number of Israeli companies whose shares are traded on US exchanges is one of the highest (second to China). Each year, foreign investors pump into Israel billions of dollars, acquiring the control of startup companies, high-tech companies and other key firms. A set of local and foreign venture capital funds and other types of investors, help with the financing of ventures, from seed stage to transformation into independent companies ready for mergers, acquisitions or further independent development of their business.
In recent years, Israel has developed an extensive industry of hedge funds of various types and specialties.
The activity of the capital market is regulated by the Securities Law as well as the banking laws and regulations promulgated thereunder. Certain aspects are regulated through the Control of Capital and Insurance Market Divisions of the Ministry of Finance.
The Securities Authority, an independent governmental authority that operates under the Securities Law, is the one in charge of regulation and control of capital market activity in Israel.
Tel Aviv Stock Exchange
In Israel there is a single stock exchange located in Tel Aviv, which is jointly owned by commercial banks in Israel and leading investment houses both in the country and overseas. The trade in this exchange is conducted by fully computerized systems; the trading and control tools that are used in this exchange are satisfactory and the reporting and control standards practiced by it are very high.
In late 2019, 442 corporations were traded on the Tel Aviv Stock Exchange, and the market value of all traded securities, including bonds and diversified financial instruments, reached NIS 2.5 trillion (approximately US$ 715 billion), including NIS 800 billion (approximately US$ 230 billion) market value of traded shares and securities convertible into shares.
11 new companies joined the list of traded companies. Out of all traded companies, there more than 56 dual-listed entities.
The equity average daily trading volume (“ADTV”), amounted to NIS 1.3 billion (appx. US$ 370 million), whilst the bond market reached NIS 3.5 billion (appx. US$ 1,000 million).
Public companies in Israel must submit to the public and regulatory authorities a full, audited financial statement once a year, and a condensed quarterly report, reviewed by their CPA. The reports are drafted according to International Financial Reporting Standards (IFRS).
However, Israeli companies that are traded in Israel alongside their trading on recognized exchanges overseas (primarily in the USA) need to submit financial statements prepared in accordance with the GAAP applicable in such foreign exchanges (usually US-GAAP).
The cost of maintenance of a medium-sized public Israeli company easily reaches several hundreds of thousands of shekels per year, and includes, alongside payments of registration fees that are not burdensome, the following: the cost of legal counselling (NIS 100-250 thousand per year); independent auditing of annual financial statements and the review of quarterly condensed statements (NIS 80-250 thousand); employment of an internal auditor (NIS 25-100 thousand); employment of at least two external independent directors (starting at NIS 50 thousand per year per each); and applying appropriate procedures for control of financial reporting (SOX) (NIS 10-50 thousand). The scope of annual reporting is large and detailed, both due to the demanding requirements of the IFRS and the requirements of local regulation. Thus, the annual financial statement of a medium-sized company can easily reaches a volume of 100 pages, whereas a quarterly report reaches roughly a third of this size.
There are several active investment funds and institutional bodies operating in Israel, which are financing resources for ventures and corporations that need non-bank or high- risk financing.